Before the Court this day is a motion by plaintiff to amend the judgment against Seats R Us to reflect its true identity as LAJ Enterprises and/or Lee Johnson.? The motion must be DENIED WITHOUT PREJUDICE for the reasons which follow.
First, there continues to be a jurisdictional problem.? As this Court pointed out on 09/11/17, plaintiff seeks an enforceable judgment against non-parties who, at present, are not subject to this Court?s jurisdiction.? The motion not served on the non-parties subject to the requested order ? a prerequisite to this Court?s jurisdiction.? Although the alter ego procedure is not the same as amending for a joint obligor, proper notice to the putative alter ego is a basic tenet of fundamental due process.? See?Toho-Towa Co. Ltd. v. Morgan Creek Productions, Inc.?(2013) 217 Cal.App.4th?1096, 1106; in accord;?Meller & Snyder v. R&T Properties, Inc.?(1998) 62 Cal.App.4th?1303, 1308-1315.? This motion was continued so that plaintiff could effectuate proper service, but reference to the registry of action fails to reveal any such service.? The nonparties should be served with the motion as if it were a summons (i.e., personal service).
Second, even without the jurisdictional issue, plaintiff has not adequately demonstrated a basis for relief as to LAJ Enterprises, much less Lee Johnson.? Under appropriate circumstances, the trial court may amend its judgment to add as a judgment debtor someone who is the alter ego of a corporate defendant.? CCP ?187.? This is an equitable proceeding based on the theory that the court is not actually adding new parties to the existing judgment, but rather inserting the ?correct? defendant.? This is an ?extreme remedy? which trial courts are to use ?reluctantly and cautiously.?? This remedy can only be employed when the moving party shows by a preponderance of the evidence three things:
- the new party controlled the underlying litigation and was virtually represented in that proceeding;
- there is a unity of interest and ownership between the judgment debtor and new party; and
- an inequitable result will follow if the new party is not added to the judgment.
See?Highland Springs Conference and Training Center v. City of Banning?(2016) 244 Cal.App.4th?267, 280-281;?Relentless Air Racing, LLC v. Airborne Turbine Ltd. Partnership(2013) 222 Cal.App.4th?811, 815-816.
Control Over Litigation
To show the requisite degree of control and?de facto?representation, the moving party should offer evidence showing that the proposed new party hired defense counsel, took part in strategy sessions, sat through trial and/or participated in settlement talks.? See,?e.g.,?Toho-Towa Co., Ltd. v. Morgan Creek Productions, Inc.?(2013) 217 Cal.App.4th?1096, 1110;?Carolina Casualty Ins. Co. v. L.M. Ross Law Group, LLP?(2012) 212 Cal.App.4th?1181, 1192-1194.
Plaintiff has no evidence of control or?de facto?representation.? Plaintiff devotes only a sentence or two to the issue (at page 7), as follows:
?testimony of Mr. Johnson establishes that he participated in and controlled the defense of SEATS R US, INC. in this litigation. Mr. Johnson testified that he and LA] ENTERPRISES, INC. were ?one and the same.? (Lazarus Dec., Exhibit 4, 3/27117 Transcript 70:9-11 testimony of Lee Johnson.)?
The cited testimony does not stand for the proposition offered.? The testimony related to payment of rent, and whether the check was handed to LAJ Enterprises or Lee Johnson.? There is no other value to that testimony.? Moreover, that has nothing to do with whether LAJ Enterprises or Lee Johnson controlled the underlying litigation.
Unity of Interest
Plaintiff commingles LAJ Enterprises and Lee Johnson, which is a mistake: piercing one does not necessarily justify piercing the other.? To begin, there is a presumption of separateness between Seats R Us and LAJ Enterprises, and a further presumption of separateness between LAJ Enterprises and Lee Johnson.? See?Toho-Towa Co., Ltd. v. Morgan Creek Productions, Inc.(2013) 217 Cal.App.4th?1096, 1107-1110.? To rebut these presumptions, plaintiff must present evidence addressing various factors regarding all three, including: stock ownership; use of the same office or business location; commingling of assets; public representations; using the same directors and officers; disregard of corporate formalities; inadequate capitalization of the judgment debtor to meet ordinary operating expenses; and the use of a corporation as a mere shell, instrumentality or conduit for the business of the alter ego.? See?Misik v. D?Arco?(2011) 197 Cal.App.4th?1065, 1073.? Some of these factors have been addressed, others have not.
Plaintiff has made a sufficient showing re: common ownership between Seats R Us and LAJ Enterprises, common control group between Seats R Us and LAJ Enterprises, and common office space between Seats R Us and LAJ Enterprises.? Plaintiff has?not?shown that Seats R Us ignored corporate formalities, was undercapitalized to meet ordinary operating expenses, or that it commingled assets with LAJ Enterprises.? Plaintiff has?not?shown that LAJ Enterprises ignored corporate formalities, was undercapitalized, or that it commingled assets with Lee Johnson.? Plaintiff has?not?shown that Lee Johnson uses either company finances as his own personal piggybank.? The fact that Seats R Us and LAJ Enterprises both suffered Franchise Board suspensions at one time does not go far enough to show both entities were shams ? which would be necessary in order to add Lee Johnson as a judgment debtor.
Inequity
The only basis offered by plaintiff for this factor is the fact that the judgment cannot be collected from Seats R Us.? First, there is no evidence that Seats R Us is judgment-proof.? Counsel does not even say as much, and does not appear to have exhausted collection efforts.? Second, the fact that a judgment cannot be collected is not enough to show inequity.? See?Sonora Diamond Corp. v. Superior Court?(2000) 83 Cal.App.4th?523, 539:
?The alter ego doctrine does not guard every unsatisfied creditor of a corporation but instead affords protection where some conduct amounting to bad faith makes it inequitable for the corporate owner to hide behind the corporate form. Difficulty in enforcing a judgment or collecting a debt does not satisfy this standard.?
In accord,?Perfect 10, Inc. v. Giganews, Inc., 847 F.3d 657, 677 (9th?Cir. 2017).
Plaintiff has not established that the proposed alter egos have engaged in anything close to bad faith warranting imposition of vicarious liability.? Plaintiff simply argues that it is ?not fair? since it would be easier to collect from the proposed alter egos.
In Conclusion
Plaintiff has elected to proceed by way of noticed motion, but has not marshalled sufficient evidence to support the motion.? There are alternative routes available to plaintiff to accomplish the same task, and plaintiff may seek leave to conduct limited discovery on the issues outlines herein.? For now, the burden has not been met for this extreme remedy.
Defendant Seats ?R? Us to give notice.